Sweden economy keeps Riksbank less inclined to act on rates

The Riksbank's September report suggests that the bank is less inclined to take any policy action. Moreover, the Swedish economy continues to perform well and perhaps even better than anticipated. 

"Higher inflation and the strong economy create breathing space and strengthen the Riksbank in its view that higher resource utilisation will lead to higher inflation longer out. The reason to why the Riksbank is still expected to take further action is mainly the SEK. Neither the ECB nor the Fed give the Riksbank a helping hand", says Nordea Bank. 

The ECB opened the door for further easing just hours after the Riksbank's rate announcement 3 September. Fed didn't hike rates last week. Nordea's forecast is that the Fed will take action before year-end, but some uncertainty regarding the first rate hike remains.

"Much suggests that the ECB will do more. At least the purchase programme might be extended beyond September 2016, something that the ECB could announce as early as this year. The monthly purchases could also be increased for 2016 from the present EUR 60bn per month", added Nordea Bank.

The trade-weighted exchange rate (KIX) is 2.5% stronger than the Riksbank projection. If the Riksbank does not take action in for example October, the SEK is very likely to appreciate further. In such a scenario, the SEK appreciation will have marked consequences for the inflation forecast, something that the Riksbank will probably avoid.